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18 May 2018

UK legal sector needs to adapt to a 'new normal' to thrive

As income and profitability falls, the UK legal sector may have taken a collective eye off the ball.

Olivier Le Maor

A new report benchmarking 113 Firms across the UK reveals firms need to focus on organic growth, and improve their efficiency and billing processes, because the sector faces the end of a three-year period of sustained growth. The MHA Legal Benchmarking Report also reveals the gap between the smallest and largest practices continues to widen.

New normal
MHA, a UK-wide group of accountancy and business advisory firms, says changing trends in income and profitability, together with changes in ownership and staffing, point to the emergence of a ‘new normal’ for the UK legal sector, where improved financial management is tackling issues such as lock up time, understanding of profit drivers and increased levels of efficiency in billing processes and procedures are needed to ensure future financial stability and profits. In 2017, mid-tier firms of 11 to 25 partners saw the largest profitability drop of 11 percent. The profitability gap between the smallest and largest firms also continues to grow. The data givers further evidence of the struggle smaller firms face in a marketplace dominated by larger firms.

Eye off the ball
The research revealed a marked change in the staffing structures of legal practices. There are fewer senior fee earners and increases in paralegal and support staff. Karen Hain, head of the professional practices sector at MHA, said ‘our research paints a challenging picture for many firms. A combination of factors, including fewer mergers and acquisitions, the impact of the fixed fee regime, increased competition from more cost effective and price-driven business models, succession planning issues and the inevitable political and economic uncertainty have created a shift in the operating environment for firms of all sizes. She said this could suggest firms ‘took their collective eye off the ball in 2017.’

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